5 Tips for Finding an Ideal Self-Directed IRA Account Custodian

Money.

You work hard for it and you are careful about who you trust with it. You have decided to open a self-directed IRA account.

Who is the best person to handle your investments? What questions should you be asking? How can you find them?

Keep reading for five tips on how to choose the right IRA custodian to handle your investment account: 

1. Customer Service

Finding an IRA custodian that provides excellent customer service is vital for your business relationship as they handle your investments for years to come. Their availability in communication is an area to focus on when evaluating their customer service. If you have a question or want to make a change, you never want to question whether they will be available to provide assistance. 

An IRA custodian that provides a high level of customer service will walk you through the information and make sure that you understand everything about each investment.

2. Look at Cost and Fees

When searching for an IRA custodian, it is important to consider the cost and fees that are associated with the service. On our website, we have a general fee schedule that breaks down the fees. 

You are already entrusting the custodian with your investments, so you should be aware of what they are gaining in return. 

3. Experience

Knowledge is a powerful thing, especially when money is involved. You want to look for an IRA custodian that has experience working in the investment areas that you are interested in. For example, if you are looking to invest in real estate, you are going to want a custodian that is familiar with the terminology of real estate. You may be new to this but you want to make sure that they are guiding you with previous experience to make the best financial choices with your investments. 

Knowing which areas you would like to invest in prior to starting your search will help narrow down which person would be best to work with.

4. Frequency of Transactions

Depending on your investment strategy, you could be holding on to assets for a long period of time or potentially trade several within a week. Working with an IRA custodian that can properly handle multiple transactions and has the systems in place complete those transactions is important. 

Simply put, you want to be sure that the IRA custodian that you pick can handle the workload and is flexible to changes within your investment strategy. 

5. Ask Questions to an IRA Custodian

Think of it as an interview. Once you have found someone that you think you would like to work with, ask them questions prior to committing to a partnership. 

Asking about what investment areas they specialize in and how accessible they are for future communication will help you see if they are a match for you. 

Call Us Today!

Please contact a Quest IRA specialist today and we can help answer any questions you may have. We look forward to working with you and serving as your IRA custodian for years to come!

Brokerage Accounts vs IRAs

According to statistics from the Investment Company Institute, IRAs have enjoyed a 10% growth rate each year and are now worth over $5 trillion dollars.

IRAs are a popular and effective way to save and invest money. At the same time, they are complex enough that it can be difficult to understand exactly how they work. In particular, they are often mixed up with brokerage accounts.

Read on to learn about brokerage accounts vs IRAs and better understand the difference!

Brokerage Accounts vs IRAs

One of the reasons that brokerage accounts and IRAs are so easily mixed up is because they function almost identically. In fact, if someone were to describe a brokerage account and IRA to you, you might not be able to tell which was which.

The differences between brokerage accounts and IRAs basically come down to their purpose rather than their function. IRA stands for investment retirement account, so it’s designed to grow your savings into a nest egg you can retire on. A brokerage account is also designed to grow your savings, the only difference being that the money may not be explicitly intended for retirement.

Now, you might think, if those are all the IRA and brokerage account differences, then does it really matter which one you get? Because of the different purposes of the two types of investments, they have a few different rules, so it does matter which one you choose.

How Is a Brokerage Account Different?

Brokerage accounts are about growing your wealth. People who buy them can remove their money from the account more or less at any time. This provides a lot of flexibility.

At the same time, like other ways of making money, the government takes a cut. If you profit off of a brokerage account, that profit is called “capital gains.” Your capital gains will be subject to the capital gains tax.

On top of that, brokerage account investments do not receive any tax advantages.

The Advantages of IRAs

The government wants to encourage people to prepare for their retirement. As a result, they provide several incentives to invest in IRAs.

IRA investments can be tax-free if done properly. As long as you’re not withdrawing money early, you can actually avoid paying taxes on income that you place in an IRA.

On top of that, when the time comes to withdraw your money in retirement, you won’t be taxed on it! Even though your money may have grown by a significant amount, that profit will be yours to keep.

The only downside to IRAs are that they are designed to be used in retirement. While you technically can take your retirement money out early, you’ll pay a penalty to the IRS to do so. As long as you intend to let the money sit and grow for your retirement, IRAs are the way to go!

Apply Your Knowledge of Brokerage Accounts vs IRAs

We hope you learned something helpful about brokerage accounts vs IRAs in this brief review of them. To learn more about how you can make the most out of investing in IRAs and the benefits of alternative investments, get in touch with us here.

What Common Mistakes Can I Avoid When Setting up a Self-Directed IRA?

Do you want to take more control over your retirement investment accounts? Have you been considering a self-directed IRA but worried about the rules?

You want to diversify your portfolio – outside of the traditional investment markets such as stocks and bonds. That’s where a self-directed IRA comes into play. It allows you to diversify while also keeping control of your investments yourself.

However, you need to make sure to avoid some common mistakes and pitfalls that plague many investors.

Read on to make sure that you don’t fall into these common pitfall traps.

A self-directed IRA allows you to invest in alternative financial investments. These can include real estate, promissory notes, oil, and gas, tax lien certificates and more.

However, instead of being administered by a bank or brokerage you instead manage the fund yourself.

Take Control Yourself

You know you need to save your money for your retirement. But it can be daunting, to say the least when you are responsible for it yourself. 

When it comes to your retirement, the only person most invested in your success is yourself. Therefore, it stands to reason that you should be the one to make the final decisions regarding your investments. However, without the correct information, you can make some unfortunate mistakes in your choices

Take control of your financial future and get started with a self-directed IRA today. Contact a Quest IRA specialist and find out how we can help you take control of your retirement.

Avoid the Pitfalls of a Self-directed IRA

When you take control of your financial future with a self-directed IRA, you need to ensure to avoid these common pitfalls.

  1. Prohibited transactions – these can be tricky to navigate so it’s important to know the rules.
  2. Due diligence – As mentioned, the rules can be tricky, and it’s imperative that with a self-directed IRA you make the decisions yourself. Always ensure you do proper due diligence before getting into any investment.
  3. Lack of liquidity – with a self-directed IRA minimum distributions are required at 72, however, the alternative investments allowed can be hard to sell. This lack of liquidity can be a common pitfall if you find yourself in an emergency and can’t get your money out of your self-directed IRA.
  4. Lack of transparency – when it comes to your exit strategy for selling your alternative investments all parties involved must be in agreement. You also must be fully transparent as to the valuation of your investments. Without this full transparency, you can fall into another common pitfall of self-directed IRAs.
  5. Lack of diversity – as most successful investors will tell you: diversity is key to successful investment accounts. However, with self-directed IRA funds, sometimes investors forget to ensure that it is fully diversified.

With a self-directed IRA, you need a trustee or custodian that specializes in these non-traditional investments. However, remember one of the common mistakes with self-directed IRA funds is the self-directed IRA owner not performing proper due diligence on investments.

So this trustee is simply a custodian of your account, not your adviser. You need to work with a company that understands the IRA rules and you can trust.

Stay Educated and Stay out of Trouble

We set up self-directed IRAs to help you prepare for your retirement. The most prepared people for retirement are those that are best educated.Keep continuing your education so you can fully prepare for the best retirement possible. For answers to your questions, contact us today. We can help you open a Quest account to get you started.

Know the Difference: IRA Transfer vs. Rollover

In order to live comfortably during retirement, you’ll need to start saving as soon as you can. Opening an IRA account is widely known as one of the most reliable ways to invest in your future.

There are two major ways to fund your IRA: transfers and rollovers.

Not everyone understands the difference between the two, though. Not sure where to start? Don’t worry, we’ve got you covered.

Let’s take a look at everything you need to know about IRA transfer vs rollover.

An IRA Transfer

When you move money from one IRA account to another, it’s known as a transfer. The same concept applies as when you move money between two separate checking accounts at different banks.

When you move funds from an IRA at one firm to an IRA account managed by another firm, the transfer isn’t reported to the IRS and no taxes are incurred. This is due to the fact that the money in the original IRA account never actually reached the account owner.

If the owner were to instead withdraw the funds and then reinvest them into another account, they would incur taxes upon withdrawal. There may even be tax penalties depending on why the money was taken out of the account.

An IRA Rollover

A rollover occurs when money is either moved from an IRA account to a retirement plan or from a retirement plan to an IRA account. When the money never reaches the account holder, it’s known as a direct rollover.

This type of rollover differs from a conventional transfer because it involves two different types of plans.

Although direct rollovers are reported to the IRS, they generally aren’t taxable since the money was never made payable to the account holder.

During an indirect rollover, the money is distributed to the account holder. But, it isn’t taxed if the money is reinvested in an IRA account within 60 days. This will allow the account funds to remain tax-deferred.

How Should I Prepare For One?

Above all else, it’s important to understand that a rollover will likely take a couple of weeks to complete. This is crucial for those handling indirect rollovers to keep in mind, as penalties occur after 60 days from when the funds are distributed to the account holder.

Additionally, most institutions will require you to fill out paperwork in order to begin the process. Some providers may have specific requirements regarding rollovers that may become a factor when reallocating your funds.

Knowing The Difference Between IRA Transfer Vs Rollover Can Seem Difficult

But it doesn’t have to be.

With the above information about an IRA transfer vs rollover in mind, you’ll be well on your way toward putting money away toward a peaceful retirement.

Want to learn more about how we can help? Feel free to get in touch with us today to see what we can do.

What is a Self-Directed IRA?

Whether it’s a Traditional IRA or a Roth IRA, a Self-Directed IRA (SDIRA), gives you all the tax advantages of an IRA with the freedom and flexibility of a wider array of investment instruments. The opportunity to take control of your financial future with greater asset diversification is one reason to invest in a self-directed IRA.

  • Regular IRAs allow investments in stocks, bonds, mutual funds, ETFs, and CDs. 
  • With a self-directed IRA, your investment options increase to include real estate, tax lien certificates, private market securities, promissory notes, and other investment opportunities. 
  • Building wealth with the tax advantages of an IRA while diversifying your retirement investment fund allows you to seek higher returns than a regular IRA. 
  • Higher yields and less volatility are another advantage of an SDIRA.

There are restrictions on what is permissible within IRS guidelines for an SDIRA. 

  • For example, you cannot borrow money from your SDIRA, sell the property to it, or enter into deals with relatives for it. 
  • You should also know that your IRA custodian cannot provide investment advice. 
  • Your IRA custodian can and should advise you of all prohibited transactions for your SDIRA.

The annual contribution limits are the same as a regular IRA: for those below the age of 50, $6000, and those older than 50, $7000. With the current and future problems with pensions, health care, Social Security, and other government programs, it is more important than ever to have a solid foundation for your financial future.

Quest Trust Company IRA Specialists can answer your questions about an SDIRA. Consider the benefits of an SDIRA with Quest Trust Company as your custodian: 

  • While most companies have only one option for your SDIRA, Quest Trust Company offers seven. 
  • Quest, there is no minimum cash balance. 
  • Transaction processing can exceed over two weeks with some companies; Quest processes transactions within 24-48 hours.

Quest offers the following for FREE (Other companies charge a fee for all of the following items):

  1. Expedited Services
  2. Processing Incoming Wires
  3. Processing Incoming Checks
  4. Roth Conversions
  5. Re-Characterizations
  6. Change Account Type Fee
  7. Certified Mail Fee
  8. Paper Statement Fee
  9. Distribution Processing
  10. Required Minimum Cash Balance (No minimum cash balance)

Contact a Quest IRA Specialist today! And discover how a self-directed IRA will fit into your retirement investment strategy. At Quest Trust Company, we help you take control of your retirement. 

How to Maximize the Growth of Your Investment IRA

When starting to plan for retirement, it’s important to start looking into tools that will help make the financial transition into retirement go as smooth as possible. Most people who are looking into ways that they can simplify the retirement process usually turn to an Individual Retirement Account. These are accounts that can have annual contributions, which can be tax deductible. Investments are only taxed when they are withdrawn from the account, but they are taxed in the same way that a regular income is taxed. There are certainly ways that people can get more out of an IRA account, which we will explain below.

The Earlier, The Better

IRAs grow when money is compounded. Investments can usually create more returns by reinvesting. If you give your money more of a chance to go through the cycle of compounding, the better chances of success for your IRA will be. This will allow your money to go through the compounding cycle without the impact of taxes taking over. Read more about this topic in our post How to Save for Retirement in Your 20s, 40s, and 60s.

Don’t Wait Until Tax Day to Contribute

\Waiting until tax day is not a good idea. A lot of people who have IRAs only make contributions to their accounts when their taxes are done. Doing this denies the chance for your IRA to grow as much as possible over the course of the year. A contribution at the beginning of the year gives the IRA a longer time to compound. Instead of making one big contribution, experts recommend putting a small portion of your money into your account throughout the year because it will benefit you most in the future

Specialize by Using your IRA

It’s crucial to set investment goals. Having investment goals will help determine what goes into your account. Experts recommend funds that are trade exchanged because they have low expenses and the other fees aren’t as much as other accounts have proven to be if you’re looking into basic retirement plans. More advanced retirement plans have distribution across many different accounts based on the taxation, also known as an asset location. Bonds that earn an income should be invested into IRAs and other financial gains and assets should be put into accounts that can be taxed.

Not every strategy for stocks is something that can be considered beneficial. It doesn’t just depend on how much you get taxed from each account, but you also have to consider what your personal situation is at the time of investment and how much you are anticipating getting back from your investment. Assets that are considered inefficient are in favor of getting put into an IRA, but other funds, like index funds, should be put into an account that can be taxable. Lower-return funds don’t have a specific end location; they can go anywhere.

IRAs can also be used for way more than what you would expect. People often find themselves investing in many different specialized funds, such as foreign equities, real estate, or investments in stocks that are considered to be small-cap stocks. Speak to your financial advisor about the best course of action for you.

Terms Every Investor Needs to Know for Self-Directed IRAs

Just like any profession, the world of finance has its own special vocabulary. Those not familiar with the terms may find paperwork confusing or difficult to understand. If you’re setting up a self-directed IRA for the first time, you will want to familiarize yourself with the below terms as you will be seeing them a lot around here!

Administrator The person or company who performs all actions related to running the plan. It could be an employer, a third-party hired to oversee the plan, or a corporate executive.

AGI (Adjusted Gross Income) The total sum of income you took in over the year minus the deductions and other qualified adjustments that reduce the total amount. Income can include earnings from a job, self-employment, taxable interest and dividends, capital gains, rental income, and any other income not exempted from income tax. The deductions for determining AGI may include student loan interest and tuition payments, IRA contributions, and teacher expenses for the classroom. The Tax Bill has changed many deductions for the 2018 year, so it’s best to brush up on what you will qualify for this tax filing year and what may be disappearing for next year.

Beneficiary Someone who receives an inherited IRA designated by the plan owner. They can include spouses, children, or anyone else related or unrelated to the plan owner, as long as they were properly listed on the paperwork.

Contribution Funds given to the IRA or 401(k). There are annual contribution limits for both IRAs and 401(k)s.

Custodian Person who handles all of the fund transfers and/or transactions associated with the plan. They must be an approved member by the IRS.

Disqualified Person Certain transactions cannot be performed within an IRA to benefit a disqualified person. An example would be purchasing a relative’s home with your IRA funds. Disqualified people may include a spouse, parents, children, fiduciaries, corporations, and more.

Distribution Withdrawals made from the IRA. There are regulations determining when you are allowed to make penalty free distributions, and some IRA plans require minimum distributions once you reach a certain age, called RMDs.

Earnings The total amount of money in your IRA minus the contributions. It’s what the IRA has earned, or how much it’s grown by, over a given period of time.

Fiduciary A person in authority over the management or administration of your IRA, or one who provides professional advice as it relates to your IRA.

Inherited IRA An IRA given to a beneficiary of the account after the account holder has passed away. Inherited IRAs have different rules and regulations than Traditional and Roth IRAs.

In-Kind Contribution These contributions are in the form of assets that have been valued at a fair market price. The value must stay within the contribution limits for the account.

Leveraged Transactions Where the account holder uses borrowed funds for purchases with the IRA. Also known as Debt Financed Transactions.

Permitted Investments Any general investments allowed under your plan. Not all plans allow the same investments, such as Real Estate Investments.

Prohibited Transaction These include unacceptable investments per the plan guidelines, or transactions that benefit a disqualified person.

Qualified Plan Approved by the IRS to allow tax-free or tax-deferred funds for retirement income. These are typical IRA plans.

Rollover Transferring funds from one plan to another, such as from a Traditional IRA to a Roth IRA.

Spousal IRA The IRA of a spouse who generates no income, or who generates an income too low to meet the contribution limits for their IRA. The working spouse can contribute to the Spousal IRA as well as their own, effectively doubling annual retirement investments.

Trustee The person who controls the assets in the IRA.

Unrelated Business Taxable Income (UBTI) Income earned by a tax-exempt organization outside of the exempt business-related activities, minus any qualifying deductions.

Unrelated Debt Financed Income Tax (UDFI) The tax on funds gained from a debt financed transaction that exceed $1,000. For example, if you borrowed $4,000 for an investment, and the investment appreciated to $7,000, you would pay tax on the $3,000 it earned.

FAQs for Small Business IRA Contributions

Although not required for small business owners in most states, small business IRAs are a great way for owners and their employees to save for their futures. There are two major accounts you can set up as a small business owner, each with different set-up requirements, flexible options, and employee participation rules. One is called the Simplified Employee Pension (SEP) IRA, and the other is called the Savings Incentive Match Plan for Employees (SIMPLE) IRA. Here are the most common questions small business owners have with regards to these two account options:

SEP

  • What are the contribution limits of a SEP? All contributions to an employee’s plan must come from the employer. Employees cannot contribute to their SEP plans. The maximum contribution an employer can make to the plan is 25% of the employee’s salary, or up to $55,000 if 25% exceeds this amount. The same goes for your own account as the business owner.
  • Do I have to contribute the same percentage for each employee? Yes. Many plans require you to choose a percentage you would like to contribute for each employee. If you choose 3%, everybody gets a 3% contribution no matter how much they earn. This can lead to different total amounts. Remember, whatever percentage you choose also applies to your own account.
  • How do the tax deductions work? The contributions your business makes to each account don’t count toward the individual employees’ gross incomes. So, they won’t have to claim it as taxable income when filing. Contributions are tax deductible for the employer, including their own personal plan. The funds will grow tax deferred and the employees will pay income taxes on any distributions.

SIMPLE

  • What are the contribution limits of a SIMPLE IRA? An employer can choose to contribute 2% to all employees who earn at least $5,000, and up to $275,000 (2018) in income, or employers can offer up to 3% matching for employees who electively take a salary reduction contribution for their plans. In each case, the employee cannot contribute more than $12,500 to their plan per year, or $15,500 if older than 50. If the employer chooses to make 2% contributions, they must give this to every employee regardless of whether or not they make their own contributions to the plan.
  • How does matching work? For employers who choose the matching plan (rather than the flat 2% plan), employees will decide how much of their income they would like to contribute directly into their SIMPLE IRA. The employer then matches up to 3% of their income into the plan. If the employee decides to contribute 2%, the employer will also match the 2%. If the employee decides to contribute 5%, the employer will only have the ability to match up to 3%.

How do the tax deductions work? Just like with SEP IRAs, employers can deduct contributions to a SIMPLE IRAs annually. The employee only pays the taxes on the distributions when they list it as taxable income on their tax returns.

Real Estate IRA Rules

If you haven’t been too fond of how your IRA is doing with stocks or bonds, you’ll want to take a look into putting your IRA funds towards real estate. Any type of real estate can be purchased with an IRA. Although you can invest your IRA towards real estate, there are many rules you have to follow for how you can buy real estate with your IRA and how you can use your real estate. If you violate these rules, you will face serious consequences with your taxes.

Self-Directed IRA

IRS rules do not set a requirement for forcing real estate as an option towards investment, even though the rules of the IRS do allow IRA funds to be used towards a real estate investment. Most companies that offer traditional IRA investments will not allow an IRA owner to make an investment in real estate. This is because there is a burden on administration for the management of real estate investments. If you are in this position and want to invest IRA funds in real estate, you will be put into a position where you have to convert some or all of your traditional IRA funds to a self-directed IRA. A self-directed IRA is a type of IRA that allows you and you alone to make decisions on your investments. These can be created at banks that are non-depository.


Transactions that are prohibited

Based on the rules of the IRS, real estate that is owned by an IRA can only used for investment purposes. Because of this, several restrictions have been placed that change the way you can manage your real estate investment. One of the most important terms when trying to understand the restrictions is “disqualified persons”. This is talking about the person who owns the IRA and the people close to them. Disqualified persons would be advisers and someone in a business who has interest that is greater than 50 percent. Purchase from a person who is considered disqualified is against the IRS rules, and it prevents them from using any real estate that has been purchased with an IRA for self-gain.

Issues with financing

Using cash for your investment will allow a future payment for the property to stay in the IRA, which is tax deferred until distributions are ready to be taken out. However, if you get any sort of mortgage out of it, you will be required to pay taxes. You will won’t have a guarantee that you will get a portion of the mortgage back.

Tax Consequences

Violating the rules of the IRS regarding restricted transactions will allow the IRS to take the funds that you used in your IRAs distribution. You will be required to pay taxes on funds that are from the first year in which the payment has taken place, and you will also be charged interest. Additional penalties could be included, depending on the situation. It is best to follow the rules and always talk to an advisor before moving funds to avoid accidental penalty.